NOVEMBER/ DECEMBER 1997
Steven Radelet and Jeffrey Sachs
Volume 76 • Number 6
The contents of Foreign Affairs are copyrighted. © 1997 Council on Foreign Relations, Inc. All rights reserved.
Steven Radelet and Jeffrey Sachs
capitalism leaves its western enclave Beginning in the early 1500s, for more than four centuries now,the West has been ascendant in the world economy. With but 14 percent of the world’s population in 1820, Western Europe and four colonial oªshoots of Great Britain (Australia, Canada, New Zealand, and the United States) had already achieved around 25 percent of world income. By 1950, after a century and a half of Western industrialization, their income share had soared to 56 percent, while theirpopulation share hovered around 17 percent. Asia, with 66 percent of the world’s population, had a meager 19 percent of world income, compared with 58 percent in 1820. In 1950, however, one of the great changes of modern history began, with the rapid growth of many Asian economies. By 1992, fueled by high growth rates, Asia’s share of world income had risen to 33 percent.⁄ This tidal shift is likelyto continue, with Asia reemerging by the early 21st century as the world’s center of economic activity. Asia’s sudden ascent has become something of a Rorschach test for the economics profession and the foreign policy community. For some, Asia’s rapid growth is an economic miracle that calls for a reevaluation of Western economic strategies. For others, such as the mit economist Paul Krugman,writing in the November/December 1994 Foreign Affairs, the rapid growth has looked hollow. Not only has there been no miracle, but there was reason to believe that Asian growth might display weaknesses similar to those of the period of rapid Soviet growth in the 1950s and 1960s. These doubts seemed to
Steven Radelet is an Institute Associate at the Harvard Institute for International Development.Jeffrey Sachs is the Director of hiid and Galen L. Stone Professor of International Trade at Harvard University.
Asia’s Reemergence ﬁnd support in the sudden, sharp currency crises that gripped several high-ﬂying Southeast Asian economies (especially Indonesia, Malaysia, the Philippines, and Thailand) in mid-1997. Even money managers formerly enamored of the region decried underlyinginstitutional weaknesses, including corruption, nepotism, populist policies, and insu⁄cient banking regulation. The Southeast Asian currency crises of 1997 are not a sign of the end of Asian growth but rather a recurring—if di⁄cult to predict—pattern of ﬁnancial instability that often accompanies rapid economic growth. Just as Indonesia, Malaysia, and Korea rapidly recovered from ﬁnancial crises inthe 1970s and 1980s, so the Asian economies are likely to resume rapid growth within two to three years. In the long term, growth will continue because most of Asia has adopted capitalism as the organizing basis of economic life and become deeply integrated into the global economy. This has been true for more than a century in Japan, since the Meiji Restoration of 1868. Korea and Taiwan adoptedessentially capitalist development strategies in the 1960s, while most of Southeast Asia made similar choices in the 1970s. Even China in recent years can be considered to have adopted an essentially capitalist development model, despite continued Communist Party rule and a state sector that still employs around 18 percent of the labor force. India began turning away from a milder version ofsocialism in the early 1990s, though Indian domestic politics still contains strong doses of anticapitalist rhetoric. If there is anything to the “Asian miracle,” it is that several governments, beneﬁting from Japan’s early experience and from each other’s experiences since the 1960s, have been able to create an economic environment for proﬁtable, private investment—almost always with important foreign...